Does Ardea Bioscience Stock Have Any More Room to Run?

Jan.21.11 | About: Ardea Biosciences (ARDC-OLD)
Ardea Biosciences (PINK:ARDC-OLD) stock appreciated about 36% since mid-December to a high of $30.61 a couple weeks prior to its release of successful Phase IIb gout data; it has been dropping since. Gout hasn’t been the most exciting area of research. Until 2009, 40 years went by without a new approved treatment for the arthritic disorder. That year, febuxoxtat, marketed by Takeda (OTC:TKPHY) in the U.S. became available, followed by pegloticase from Savient Pharmaceuticals (OTC:SVNT) in 2010.
The company’s recent announcement that it had earned a $15 million milestone payment from Bayer (OTC:BYERF) gave a small boost to its shares. This milestone was triggered by the initiation of a Phase II clinical study evaluating the compound, BAY 86-9766, in combination with sorafenib (Nexavar) for the treatment of hepatocellular carcinoma, or primary liver cancer.
Gout results from an acute inflammatory response to crystallized uric acid in the affected joints, causing flares characterized by intense pain, redness, swelling, and heat. It is the most common inflammatory arthritis in men older than 40 years, affecting about 5.1 million Americans, according to the National Health and Nutrition Examination Survey III 1988–1994. It is not a huge market, with U.S. sales of about $900 million according to the IMS. However, it is growing quickly due to the recent availability of new treatment options.
Ardea’s Phase IIb was a 28-day randomized, placebo controlled study of its URAT1 transporter inhibitor, RDEA594, in combination with the current standard of care for the treatment of gout, allopurinol. Allopurinol currently accounts for greater than 90% of the unit sales of chronic gout prescription medications; however, in controlled trials, only 30-40% of gout patients respond adequately to allopurinol as defined by the achievement of a serum uric acid (sUA) level of less than 6 mg/dL, the medically recommended target. In this Phase IIb study, the primary and key secondary endpoints were achieved, with highly statistically significant reductions in sUA and up to 89% of patients taking a combination of RDEA594 600 mg and allopurinol reaching target sUA.
Reductions in sUA and response rates increased in a dose-related manner when RDEA594 was combined with allopurinol and were highly clinically and statistically significant at all dose levels when compared to allopurinol alone. At the highest dose tested of 600 mg, there was a 30% mean reduction in sUA levels after 4 weeks, compared to a 3% mean increase on placebo. This resulted in a response rate of 79% for the 600 mg dose.
The mechanism of action between allupurinol, which lowers the production of sUA, is complementary to that of RDEA594, which aids in the excretion of sUA. Their effectiveness in combination is therefore not overly surprising. Significant sales may be obtained if this combination becomes the new standard of care and grows the overall market.
Ardea now has a valuation of well over $600 million (including the 2.75 million share offering expected to close January 25). The company has a nice MEK compound, but licensed out and only in Phase II. Its compound for gout appears highly effective- but its market potential remains uncertain and further trials are still required. It would appear the company is fully valued.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.